Denmark

After a week of severe fluctuations in all market segments, traders said Monday morning was the quietest day in weeks. Market participants are hoping for a modicum of stability to improve the chances of primary supply at the end of the month and several issuers from core jurisdictions are finalising roadshows in order to come to market, syndicate bankers said. But if new issue premiums are at the top end of expectations, they added, it will reshape the secondary curve — and this may deter some names from returning.

French covered bonds have widened in the secondary market following concern that the sovereign could lose its triple-A rating. Meanwhile traders reported buying in Spanish and Italian covered bonds as investors move out of government paper.

Moody’s took negative rating action on covered bonds issued by two Danish banks on Thursday, and withdrew the ratings on one. Nykredit Realkredit’s Capital Centre D was downgraded and three of BRFkredit’s programmes were placed on review for downgrade. The rating agency withdrew its rating on Realkredit Danmark’s covered bonds. An S&P report released on Thursday suggests the agency is increasingly bearish about the state of the Danish banking sector.

The fight for the Danish mortgage system will continue, as CRD IV proposals released on Wednesday left undefined which assets would qualify as Level 1 or Level 2 as part of Basel III’s Liquidity Coverage Ratio (LCR).

Moody's today announced senior unsecured bond downgrades for three Danish banks. As a result the over-collateralisation levels of the covered bonds issued by these banks needs to be raised to maintain current ratings. Whether or not local banks choose to keep Moody’s and post significantly more collateral is, as yet, undecided, but after Realkredit Danmark’s decision to drop the agency, it’s possible that others will follow its lead.

Covered bond bankers expect the Greek parliament to approve austerity measures in today’s vote, but even if that happens, they do not expect much of a relief rally. If the measures are not approved then it’s likely that the consequences will be catastrophic.

Following Amagerbanken's collapse, Denmark’s Fjordbank Mors has become the latest bank casualty after it failed to meet the local regulator’s solvency requirements. The bank’s failure comes amidst growing concern over the country’s high household indebtedness and increased rating agency scrutiny of local covered bond programmes. Realkredit Danmark and Nykredit have both restructured their covered bond pools, isolating adjustable rate mortgages. Other issuers are expected to follow. And, in response to Moody’s increasingly draconian approach, Realkredit has dropped the agency.

Two Danish issuers completed auctions of mortgage backed covered bonds to refinance adjustable rate mortgage (ARM) loans this week. Nordea Kredit Realkreditaktieselskab sold DKK11bn on Wednesday, and Realkredit Danmark on Thursday auctioned Eu680m of one year bonds.

Covered bond analysts have turned their attention to rising house prices in Scandinavia, following a report by Standard & Poor’s, which warned that rising private sector debt to GDP levels, fuelled by increased mortgage borrowing, could present a danger to banks and their assets in the event of a severe economic downturn.

Sampo Housing Loan Bank sold a Eu1bn 10 year transaction on Tuesday, which despite high credit and cover pool quality priced at the wide end of guidance. Syndicate officials pointed to a rise in rates and general aversion to risk among investors as two factors that held the transaction back.

Moody’s increased the refinancing margins and lowered the timely payment indicators (TPI) from very high to high on 12 Danish covered bond programmes on Friday, following a rise in adjustable-rate mortgage loans (ARM) in Danish cover pools.

As a proxy for national mortgage markets, LBBW research has taken a closer look European mortgage pool statistics and macro-economic housing market trends. Controversially, it finds that Spanish NPLs have halved in the last two years. In contrast Scandinavia, which is stereotyped as safer than safe, could be heading for trouble as house prices reach 30-year highs.